So you’re done with renting or living with family or friends and you’re ready to move on up to obtaining your first big investment. You’re now ready to buy your first home!
Congrats on making, in my opinion, this wonderful and smart decision. Buying your own place is a great thing, hell, if you want to keep renting and just get an income producing property, that is a smart choice as well.
I feel everyone should own property and have the power to choose in living in it or renting it out. Property is an asset that usually increases in value, if you make the right choices on where you obtain it, and it can be liquidated when necessary or even borrowed from like your own personal bank.
But seeing that this is the first time you are going through this process, you might be wondering where do you start and what are the steps you will have to go through? I will let you know that it isn’t an easy process and there may be many bumps along the way but don’t get discouraged. If you keep moving forward and have a great agent by your side, it will get done and you will be able to say that you are now a homeowner…or a landlord.
Well let’s get this started shall we?
Okay so you are ready to go and jump right in, head first, into your home search. You have decided on where and what you want and saw a perfect property on Realtor.com or one of those other sites and you are about to send the agent a message to schedule a time to see the property.
Hold up! Step on those breaks right now! Have you been pre-approved? Do you know your budget? Do you have enough for closing costs? How much of a home can you afford? Did you think about the taxes and other expenses? What about repairs? Do you know if you have enough to pay for the home and eat every day? Owning a property is a big responsibility. You have to know that you have enough to take care of those responsibilities and continue to take care of yourself and your family.
Another important factor, believe it or not, but most of the agents that you contact will ask if you have been pre-approved or if you have the funding to pay for the property in cash before showing you the home. They have a responsibility to the seller to bring them qualified buyers. If you don’t meet any of those pre-qualifications, they will suggest their mortgage connections to help you get the pre-approval first. The pre-approval will let agents know your price point and help agents know what type of properties and neighborhoods you can afford to purchase. It doesn’t make any sense for you to see a property that is 30 grand above what you can afford and sellers aren’t so fond of window shoppers visiting their homes.
Another part of a pre-approval is to see what type of mortgages you can be approved for. Did you know that there are federal grants available if you qualify which will lower your purchase price? Also, did you know that FHA (Federal) loans allow you to put a minimum of 3.5% down on a home? So, for instance, if your home is $339,000, all you would need to put down is $11,865. If you are a Veteran, you don’t have to put anything down. Vets get 100% financing. There are also some conventional loans that allow as little as 3% down on a home but typically, conventional loans require 10 or 20% down on a home.
In order to get a pre-approval, you must have decent credit and work for the same company for at least 2 years with a steady income. If you get ahold of a great mortgage loan officer, and you have switched employment but increased pay, you may be able to get that overlooked. Self employed parties must get paperwork from their accountants. The better your credit, the lower your interest rate. The lower the rate, the less you pay to your bank in fees.
FHA loans are a bit more flexible with your credit score. Meaning you could get a loan with your credit score in the mid to upper 600’s but that will depend on other factors which you would have to go over with your mortgage banker. Pre-approvals won’t mess up your credit if multiple pre-approvals are done. The credit bureaus should count these inquiries as one as long as they are done within the same time. If you want to shop around for the best rates, don’t fear it too much. Getting multiple pre-approvals is a good idea but still expect to lose some points.
*Cash buyers please note: All you need is have a printout of your last statement readily available showing proof of funds to cover the price of the home or you can have your accountant take care of it with a letter and/or bank statement.
Choosing an Agent
Okay, so you have your pre-approval, now what? Well unless you know a guy that knows a guy (or gal), go online and start checking out some agents. Yes, having a great hardworking agent is a highly important must do.
I know, I know, why should you do that when you can just find a property and just contact that agent? Well, you should know that that agent is working for the seller. If you contact an agent who has the listing, which means they have an agreement or a written contract with the sellers, they work for them not you. They work in the seller’s best interests, not yours and owe fiduciary responsibility to them not you which means they tell them everything and you, not so much. They have to be truthful and honest to you however, but they don’t have to tell you everything.
If the agent is showing you a property that doesn’t belong to them or to their agency, they are still not working for you. They are a Broker’s Agent not a Buyer’s Agent. If you are still a bit confused with this, please read NYS Agency Disclosure. Finding your own agent to represent you as a buyer is just like getting a lawyer to represent you. You wouldn’t go to court without being represented correct? Why would you do that when purchasing a home, the most costly investment you will ever make in your life? Hire an agent but keep in mind that agent’s are not created equal so do your research!
Great agents always know the right people. So let’s say, you haven’t gotten your pre-approval yet, they would know the right people to connect you with. Let’s say, you don’t have an attorney yet (because you will need one), they have that too. You need some moving men, ask your agent. You need someone to do renovations, ask your agent. Licensed Real Estate Agents are the first network marketers you could say. Just ask them, they always know a guy (or gal).
They should also be knowledgeable. They should be able to put your mind at ease with any questions that you may have but I will get to that in the next section.
What about the fees?
Usually, sellers pay the agent’s fees through the seller’s commission so you wouldn’t have to worry about that, unless you want to work something out with your agent (which is always nice).
Another added bonus? It takes the headaches of having fifty million agent’s calling you, trying sell you the home they have listed. Okay, so I am over exaggerating s bit but hopefully you get the point. Let your agent deal with them and be your buffer.
Your agent would keep track of all the properties that you have seen and find another that may interest you. We all have access to the same properties anyway and it is illegal for any agent to tell us that they can’t show another agent a property if the property isn’t in contract, if it’s listed in an MLS, and if they are a Licensed Real Estate Agent (if they aren’t licensed, that’s an issue too).
The other cool thing about having your own agent is the relationships you build with them. You may end up seeing many properties with your agent and they will get a feel for what you really want in a home (because sometimes what our buyers say they want isn’t what they really wanted in the first place). Not only do you get closer professionally and build trust with your agent, you will also get closer personally and become like family. I still contact my buyers regularly to this day and have some Thanksgiving dinners I have to make sure I attend this year as well as gifts for Christmas to think about.
Meeting Your Agent
The first time you meet your agent, you will be wary. Why wouldn’t you be? Sure you did your research and maybe someone referred them to you but unless you personally know them, they are a stranger. This first meeting is highly important because this meeting is where you will share your expectations with them and they will share their expectations with you.
Wait, their expectations you say? Yes, we have expectations of you as well. Let me explain.
The first meeting you will share what you are looking for: condo, multi-family, mixed-use, number of bedrooms, number of bathrooms, parking, renovated, neighborhoods, etc. You will share your pre-approval and what you expect from them.
They in turn should let you know if what you want is feasible by comparing your wants to what you have in your pre-approval. They should share with you the whole buying process and what to expect along the way. They should ask if you have your own attorney and request that attorney’s information. Their expectations may be for you to trust in them and that they will work hard for you and be honest with you along the way, that they will update you on any changes or if more properties that may interest you pop up, that they will let you know. They should state that they expect you to maintain your credit and not make any major purchases on credit during the entire process.
*Cash buyers please note: Have your proof of funds readily available to give to your agent. The agent will need that when submitting an offer on your behalf.
Now for the fun. Checking out properties. Your agent will take you out to see many properties and some may seem out of your budget. Don’t get shook up if the agent shows you something that’s above your price bracket. They may be doing it for one of two reasons. One, to educate you. Some buyers are very stubborn and really think they can get what they want for the price they want. Sometimes you have to show the truth, and the truth may hurt. You may not be able to afford this in this neighborhood or perhaps you need to downsize or minus the driveway. The other reason why would be that they know they can put a lower offer on the property and get it accepted.
You may see a property that has a lot of clutter or isn’t as personalized as you want it to be. Keep this in mind: even if you have a huge budget, homes don’t come personalized to you. They may be full of clutter or have some outdated finishings but that doesn’t mean the home isn’t right for you. Try to always go to homes with an open mind. Unless it’s a new development and the developer allows modifications to occur then great. But if you are buying a resale and not a new construction (which are most homes in the market), you have to realize that it will not be exactly the way you want it to be but it can be close to what you wanted.
Making an Offer
So you have looked at multiple homes and you have finally found, “the one”. Have you checked out local zoning and planning offices to find out future road plans, etc? Maybe stop by the local chambers of commerce for any statistics that may be of interest? What about heading to the local precinct to find out about the local crime stats? Agents can’t legally tell you if an area is safe but you are free to find out yourself. After you have made your mind up it’s time for you to sit down with your agent and strategize on what your offer would be. A great agent would look at comparable sales of homes, like the one you have chosen, in the immediate area within the past 6 months and let you know a good price range where you would probably get an accepted offer. The decision is ultimately yours.
Be prepared to negotiate. It’s rare for a seller to accept an initial purchase offer. Also be prepared to have a bidding war if the price of the home is right and the market is hot. In that situation there may be a possibility that you won’t get it, just as much as there is a possibility that you will get it. I always advise my clients never get too attached in a home until you have a signed contract and even then, things can happen. But it’s the agent’s duty to keep things working as smoothly as possible and get you your home.
Inspections and Conditions
Great! Your offer was accepted, now what? Well, your agent will connect with he sellers agent and the sellers attorney. The agent will pass on your offer information and your attorney information. The sellers attorney will draft up the contract and send it to your attorney for review, which is also called their due diligence. At this time, it would be best to get your future home inspected.
During the entire due diligence process, your attorney may make some modifications which the seller would agree or disagree on, on your behalf. This would include a time-frame for your mortgage to get fully approved, allow for inspections to be made, and conditions to be met by the seller after inspections have been done and the report submitted. All this should be written in the contract and, if you have a great attorney, it should be thoroughly discussed with you before you sign off on it.
If everything goes well, your attorney would call you up and have you come in, discuss the contract with you and then, when your ready, request you to sign it and submit your initial investment (your deposit or downpayment). The signed paperwork and check would get sent back over to the seller’s side and the seller would sign off on it while the check goes into escrow. At this point you are in contract.
So after you go into contract, everyone has to hustle. The banks need to get their stuff together for closing which includes their appraisal, anything that was found during inspection that needs to be addressed per the contract will get done now so that all of the conditions are met. If things get hairy during this time, the contract may fall apart. If you, the buyer, want to withdrawal from this contract for reasons that exclude what would be stated as allowable in the contract, you will forfeit your deposit.
*Cash buyers please note: As a cash buyer you do not have to worry about bank approvals which includes appraisals. You can wave inspections if you want but it’s strongly recommended even if it is a Condo and/or Coop resale. Typically, you will be able to close within 30 days.
Okay, so everything looks good. All the paperwork has been taken care of, all the conditions have been met and the closing has been scheduled. Within three days prior to the closing, all buyers should be allowed to perform a final walk-though. This will allow you to see if there is something that shouldn’t be there, like a hole in the wall that wasn’t there when you initially saw the property or maybe a fridge that is missing that was, per the contract, suppose to be there. Make sure to read the contract carefully, but most contracts read that all electrical systems, plumbing, appliances, heating, and air conditioning need to be in working order at the time of closing. These are the most important items you check for during your final walk-through. A great agent will be with you during this entire time to make any notations that you want to address. For the most part, at this stage there shouldn’t be any problems but things happen.
The time has finally come. You have dealt with the whole process and maybe at times got a little emotional too, but you are finally here. It’s time for the closing. Now you will have to sit for about two hours with a whole bunch of people you don’t know in a conference room and sign a book worth pages. It might seem as if you’re signing your life away but you are taking your final step to obtaining a valuable investment. You will see the seller or sellers and their attorney, your bank’s representative if you have a mortgage, your attorney, and the title company representative to name a few. If you chose a great agent, they would be there as well. You will have to at this point pay your attorney and the closing costs and if you made an agreement with your agent, pay your agent.
After everything has been signed, and checks have been submitted and passed along. You get your keys and the home is yours.
If you are moving into your new home you should have planned things out a bit, have your movers ready or maybe a cleaning crew to visit the home. Get a few quotes so you can see if you can get a good deal as well as be sure to look at their reviews. If you haven’t been able to or don’t have the time, and you have a great agent, they would be sure to help you with your moving arrangements and could even get your cable/satellite scheduled for you so you won’t have to worry about it. Be sure to change your address with the post office, your banks, and any creditors at least 30 days in advance. To avoid late payments, it’s a good idea to actually call and verify receipt of the address.
That’s the process more or less. Well, at least in the State of New York but it should be somewhat similar in other states as well. If you have any questions on what I have shared, need help finding an agent out of state that can help you, need some advice or help on buying or selling a home, don’t be shy! Shoot me an email, comment below, or give me a call, I’d love to help (I don’t bite…usually).